The final stage of my PhD focuses upon the Australian Tax System, owing to which I have come in contact with some fascinating literature exploring the history of taxation in Australia. One book for instance, +400 pages long entitled: “Working for all Australians 1910-2010: a brief history of the Australian Taxation Office” by Leigh Edmonds (available here), contains a host of gems unearthed during archival research.
An episode of note in the book relates to the introduction of a tax on flour (see pages 95 and 96):
“The flour tax was introduced in 1934 to help the wheat industry because the cost of production had become more than the sale price. Millers and others in the flour industry paid a levy intended to raise about half of the £3 million needed to support the wheat industry, which was passed on to state governments to be allocated to distressed wheat farmers. This tax was modelled on the sales tax and the Australian Tax Office administered it using sales tax staff, so the cost of collection was minimal. The tax first operated between December 1933 and May 1934, then from January 1935 to February 1936 and it was revived again in December 1938 as part of a wheat price stabilisation scheme”
What follows are the three classic consequences which flow from the introduction of a new tax (obligation or relief: when reading the below extract, think about the lifespan of Film Tax Relief for instance). First, taxpayers attempt to shift behaviour to avoid the new charge. Secondly, increased resources are required to tackle non-compliance. Finally, prudence on the part of the enforcers or lawmakers is necessary to outwit the avoiders.
The Commissioner of the Australian Tax Office (then Robert Ewing) described the fallout as follows:
“It was known that many persons had purchased large quantities of flour when the flour tax was first mooted, hoping thereby to avoid the incidence of the tax. Special action was taken to ensure that these persons accounted for the full amount of tax due by them, both to protect the revenue and to prevent competitive disabilities to other traders. The services of postmasters, country valuers, and officers of the Taxation Department were utilised in the inspection of stocks of flour held on 4th December, 1933, by persons in the metropolitan areas and larger country centres. The prompt action taken in this regard obviated in a large measure under-statements by taxpayers of stocks held by them.”
What lessons can be derived from this episode? The first is obviously that policymakers should be aware of the reaction of the target taxpayers group (as was clearly not the case in the ill-fated “Wallpaper tax”) when introducing change to the system, either by reason of a new tax, relief or obligation. The fact that HMRC is still unwinding Employment Benefit Trusts entered into to avoid the Bank Payroll Tax (an exceptional 50% levy on “bankers bonuses” above £25,000 in 2010) suggests that this has not yet been fully learnt. The second is to ensure that the revenue collecting body is adequately resourced to tackle any ensuing compliance issues. In this respect, one wonders whether the current government has properly reconciled the continuing cuts to HMRC (a further 18% announced at the Autumn Statement) with the increase in duties it is undertaking (is it realistic to expect HMRC to be able to cope with, for instance, Quarterly Tax Returns by 2020?).
Ultimately, the case of the Flour Tax, from the 1930s in Australia, demonstrates just how unnervingly timeless and homogenous tax issues are.